According to new forecasts, Australia’s economic growth is expected to slow sharply next financial year as rising inflation curbs household consumption.

Treasury officials are warning that a slowing global economy, in particular the sputtering Chinese property sector, will hit growth in Australia which is enjoying its lowest unemployment rates in decades.

Budget papers are set to show gross domestic product (GDP) for fiscal 2023-2024 will be downgraded to 1.5% from the 2.5% forecast in April. GDP is also due to be downgraded to 3.25% from 3.5% for 2022-2023, according to draft figures from the Treasury.

The drop-off is blamed on a slump in consumer spending as rising prices and the biggest jump in interest rates in decades cut into household budgets.

In addition to slower economic growth, the budget is also expected to reveal that federal government debt will peak at $789 billion this financial year before falling slightly to $785 billion in 2025-2026. The government has previously promised to bring the budget back into surplus by 2029-2030.